Home prices, mortgages, rents and rates all hit by migration surge

A boom in migrants is helping to cause housing havoc in Australia and making both property and peoples’ finances weird right now.

If two’s company and three’s a crowd, what is 630,000?

That’s how many people Australia’s population is estimated to have grown by last financial year, according to some estimates, and the flood of newcomers is causing housing havoc.

Whether it’s rents, home values or the high interest people are paying after 13 rate rises by the Reserve Bank of Australia, population is impacting household wealth, spending and saving.

While we had a worker shortage coming out of Covid, the rush to get more bums on seats across Australia seems to have been too successful. Perhaps it’s because we live in the best country in the world, and much of the world knows it.

Here’s how migration is affecting real estate.

Home values

Despite the RBA’s painful rate rise cycle propelling mortgage repayments sharply higher and stripping cash from household budgets, home prices have been rising. This is not normal.

The latest PropTrack figures show national home prices have reclaimed all of 2022’s falls and are up more than 4.9 per cent year-on-year.

PropTrack senior economist Eleanor Creagh says “record levels of net overseas migration” were among the factors pushing prices higher.

Home values have climbed despite surging interest rates, an unusual mix. Picture: iStock

AMP chief economist Shane Oliver says the current upswing is unusual, and warns property price growth is likely to slow in 2024. “There is a very high risk of another leg down in average home prices emerging next year, particularly if unemployment rises significantly,” he says.

Interest rates

A recent economic report by KPMG says massive population growth – an estimated 630,000 in 2022-23 – has staved off a recession by underpinning consumption, investment and a big jump in tax revenues for the Albanese government.

KPMG says consumer spending will rise as the weight of new residents’ money overtakes the slowdown in spending from borrowers and tenants “who are battling with higher interest rates and rents”.

This is a key reason why the RBA lifted its official cash rate this month from 4.1 to 4.35 per cent.

Housing Industry Association chief economist Tim Reardon says the strong migration has “obscured the adverse impact of rising interest rates”, with economic growth disrupted by two years without migration then two years of catch-up.

“This disruption to migration is now distorting the RBA’s decision making,” he says.

Mortgages

High interest rates feed through to mortgage repayments, with repayment costs on variable-rate mortgages surging 60 per cent since mid-2022.

And more mortgage pain is coming, with hundreds of thousands of borrowers still on low fixed-rate home loans that will revert to higher variable rates over the next 12 months.

Rents

Every day we hear horror stories about people being unable to find a rental property, and of huge tenant queues when homes his the market as demand outweighs supply and vacancy rates shrink.

CoreLogic head of research Eliza Owen says migration skews demand toward the rental market, with a majority of migrants seeking to rent.

However, reducing migration would have trade-offs, she says. “Overseas migration helps to grow the economy … migration is also being looked at to help with the housing crisis, by targeting migrants skilled in construction.”

Originally published as Home prices, mortgages, rents and rates all hit by migration surge